- The Washington Times - Thursday, October 31, 2002

NEW YORK (AP) Citigroup is separating its stock research from its investment-banking operation in a move aimed at eliminating potential conflicts of interest, which are under investigation by securities regulators and the New York state attorney general.
Citigroup said yesterday it is creating a new unit, to be called Smith Barney, that will include both equity research and its retail brokerage business.
The unit will be led by Sallie L. Krawcheck, 37, who currently is chairman and chief executive officer of the independent research firm Sanford C. Bernstein. She will report directly to Citigroup Chairman and CEO Sanford I. Weill.
"Sallie is a strong advocate for research quality and independence," Mr. Weill said in announcing the reorganization.
The announcement by Citigroup, the nation's largest financial institution, came the same day regulators had set as a deadline for reaching agreement with top brokerages on a proposal to make Wall Street stock analysis more independent.
Under discussion is creation of a special $1 billion pool, funded by large investment banks and brokerage houses, that would be used to finance independent stock researchers. The parties have agreed to that general framework, the New York Times reported yesterday.
The proposed arrangement would avoid any conflict between researchers' ratings of a company's stock and efforts by investment bankers to lure that company's business. Citigroup has been accused of conflict in its handling of telecommunications companies, with researchers touting firms that bankers had interest in cutting deals with.
In an interview with the Associated Press, Mr. Weill denied Citigroup was trying to do an end-run around the regulators.
"This is not trying to placate any regulators," Mr. Weill said. "We care about our clients. We care about the people who work for this company. We are creating a business model that will drive value for our shareholders also."
He added that "what we are doing can adapt to whatever the regulatory model will be."
Michael Mayo, analyst at Prudential Securities, said Citigroup's reorganization was "a step in the right direction" because it furthers the cause of independent research.
"You can wonder, though, if it goes far enough to satisfy the regulators," he added. "That's really the issue."
Mr. Mayo pointed out that Citigroup still must deal with questions into its role in financing energy trader Enron and telecommunications giant WorldCom, both of which are in bankruptcy.
"Research conflicts of interest are small potatoes relative to the main course of the financing issues surrounding Enron and WorldCom," Mr. Mayo said.
The reorganization will pull the research department and private-client business out of Citigroup's Global Corporate and Investment Bank. It also drops the "Salomon" in the Salomon Smith Barney name, which had come from the old Salomon Bros. brokerage that was blended into Citigroup in a 1998 merger.
Citigroup's corporate and investment-banking operations will remain under Charles Prince, who was named head of the unit in September. Analysts believe Mr. Prince, a 52-year-old lawyer, will be Citigroup's point man in dealing with Enron and WorldCom issues.
Miss Krawcheck said the new Smith Barney unit will include some 12,500 financial consultants and about 300 analysts.

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